The capital market has shown resilience in a global market buffeted by crises and a national economy toughened by misalignments. Increasingly, the bulwark for national survival, governments and corporates’ hopes for finance rest more on the capital market.The domestic investors want the dividends and capital gains to keep flowing. Deputy Group Business Editor Taofik Salako examines the underlying currents for another bullish year for the market
The Federal Government plans to source nearly one-third of the funding for the N21.83 trillion 2023 budget from debt issuances at the domestic capital market. With global crises scampering nations to self-survival, Nigeria, like many other nations, has increasingly turned to domestic sources.
The relative depth and resilience of the market have proven to be the much-needed support system the country needs, especially in the light of implications of its foreign exchange (forex) crisis on foreign debt issue. The governments and corporates raised not less than N5 trillion in new debt and equity issues in 2022. Domestic investors account for more than three-quarters of transactions at the capital market.
The Federal Government plans to fund 2023’s N11.34 trillion budget deficit largely through borrowings. These include N7.04 trillion from domestic debt issuances, N1.76 trillion from foreign sources, N1.77 trillion from multilateral and bilateral loan drawdowns and about N206.18 billion from privatization exercises during the year. Also, about N553.46 billion is expected to be financed by additional revenue from Spectrum fees and tax on the maritime sector.
From whichever perspective, the capital market has been a major silver lining in the forex-sapped and inflation-ragged economy. Against the global trend, net capital gains at the stock market stood at N4.45 trillion. Bucking a perceived tendency to depreciate in pre-election year, the benchmark index for the stock market closed 2022 with full-year average return of 19.98 per cent, equivalent to net capital gain of N4.455 trillion. This was the third consecutive year of a significant bullish run. Nigerian equities had closed 2021 with average return of 6.07 per cent, equivalent to net capital gains of N1.278 trillion. In the throes of the outbreak of COVID-19 pandemic in 2020, Nigerian equities had recorded average return of 50.03 per cent, representing net capital gains of N6.483 trillion.
The All Share Index (ASI) – the common value-based index that tracks all share prices at the Nigerian Exchange (NGX) closed 2022 at 51,251.06 points as against its 2022’s opening index of 42,716.44 points, representing average return of 19.98 per cent. Aggregate market value of all quoted equities at the NGX rose from the 2022’s opening value of N22.297 trillion to close the year at N27.915 trillion, representing an increase of 25.2 per cent or N5.62 trillion. The difference between the ASI and aggregate market value growth rate was due mainly to new primary listings during the year including large-cap listings by BUA Foods Plc and Geregu Power Plc.
Most analysts expect the stock market to continue on the upswing. Analysts at Afrinvest Securities said they expected the market to close positive, for the fourth consecutive year. Afrinvest projects a modest return of 7.3 per cent for the equities market in 2023, citing key drivers such as improved corporate earnings, moderation in fixed-income yields and changes in forex dynamics.
Managing Director, Globalview Capital Limited, Mr. Aruna Kebira, said the macroeconomic outlook supports a positive trend for the capital market.
He noted that notwithstanding the political transition, the steady positive trajectory will continue this year.
“There is always that frenzy that comes with every new year. Analyst predictions, spiritual predictions, dreams and the likes that would naturally make the year to start on a good note. 2023 is an election year and not an exception and the citizens always anticipate a better government from the newly elected one.
“The third quarter earnings reports were actually not disappointing and most exceeded the market’s expectation. The NGX has mandated all issuers to release their management reports otherwise called unaudited reports to the market in the first 60 days after the end of financial year while awaiting the audited Report.
“In the last days of December 2022, it was observed that all the issuers that come to the market with notices of board meetings were compensated by the market in anticipation of the release of their unaudited reports.
“All these are going to shape the start of the market which will eventually drive it northward except there is another unforeseen circumstance lurking around the corner.
“Nevertheless, the discovery of the monumental oil theft in the Niger Delta region of the country has put a hold on the hemorrhage on the national capacity of daily oil production. At the last check, Nigeria daily oil output has increased from 900m to about 1.3mbpd. That is cheering news to all the oil and gas stocks listed on the exchange and when that numbers begin to grow and eventually reached our daily output limit, there would be a multiplier effect across the country, inflation will eventually be tamed while interest rates will begin to moderate. Then, the stock market would thrive further,” Kebira said.
President, Chartered Institute of Stockbrokers (CIS), Mr. Oluwole Adeosun, said the outlook for the capital market remains positive.
“If the country is able to sail through the elections storms in February, we should expect a better year for the market in 2023,” Adeosun said.
Chairman, Association of Securities Dealing Houses of Nigeria (ASHON), Mr. Sam Onukwe, however, noted that the performance of the market could be moderated by the continued increase in interest rates as investors turn to higher yields investible instruments.
He said the outlook remain positive for two major sectors of banking and oil and gas with expected increase in international oil price driving the domestic oil companies and the growth of electronic transactions further improving banks’ bottomlines.
The regulatory framework at the market is also expected to receive a major boost in 2023. The Investments and Securities Bill, recently passed by the House of Representatives, is expected to be signed into law this year. Market analysts expect the proposed law to further enhance the capital market architecture.
The Bill seeks to repeal the Investments and Securities Act 2007 and to establish a new market infrastructure and wide ranging system of regulation of investments and securities businesses in Nigeria, especially in derivatives, systematic risk management, financial market infrastructure and Ponzi scheme and platforms.
Other areas the bill addresses are alternative trading systems, inclusion of National Pensions Commission as part of the board of the Securities and Exchange Commission (SEC), deletion of the provisions on merger control in the Act and amendment of the criteria of borrowing by sub nationals and strengthening and enforcement powers of SEC in line with the requirement of the International Organisation of Securities Commissions, IOSCO.
Director-General, Securities and Exchange Commission (SEC), Mr. Lamido Yuguda said the passage of the Investments and Securities Bill (ISB) into law would have dramatic impact on the market.
“We are hopeful that the Bill will be passed into law before the end of the 9th National Assembly. With less than six months to the end of the Ninth National Assembly come June, 2023, we believe that the Investments and Securities Bill (ISB) will be passed in the coming months. The ISB, if passed into law, will align the enabling Act with the realities and trends in capital market regulation and practice in Nigeria and abroad,” Yuguda said.
The revised Capital Market Master Plan will have its first full year of operation in 2023.The revised plan is seen by stakeholders as a major driver that will accelerate the growth of the nation’s capital market and increase both domestic and foreign investor participation. With a vision to be Africa’s most modern, efficient, and internationally competitive market that catalyses Nigeria’s economic growth and development, the revised master plan provides a blue print for Nigeria’s capital market to remain up to date with emerging trends and future realities. One of the targets of the new masterplan is to deepen the alternative investment market to market capitalisation of N5 trillion. The revised master plan also proposed changes to the implementation governance structure to make the market more efficient, flexible and globally competitive.
Capital market stakeholders are also expected to complete the enhancement of the E-Dividend Management Mandate System (e-DMMS) platform in 2023, a move that will further streamline and curb unclaimed dividends in the capital market.The enhancement of the e-dividend platform would include having a centralised submission of E-dividend mandate forms, Application Programming Interface (API) for banks and registrars, and a revamped web interface, among others.
With the removal of COVID-19 restrictions and expiration of a guideline that allows companies to hold their annual and other general meetings mainly through the use of proxies, the stock market will also begin a full swing of physical meeting this year, with all its dramas and costs.
The NGX is expected to launch its technology board, a platform for capital raising and trading in shares of technology firms. Already, the rules for the new board had been approved by SEC. Through the new board, NGX aims to encourage investments in indigenous technologically inclined companies and others across Africa, provide greater visibility to these companies and ultimately deepen the capital market. Securities listed on technology board will be accessible to qualified institutional investors, retail investors, and high-net-worth investors.
Chief Executive Officer, Nigerian Exchange (NGX), Mr. Temi Popoola described the approval of the listing rules and the impending launch of the new board as a landmark achievement that will position the Exchange as an attractive destination for capital formation by companies within the technology sector.
He said the new board attests to NGX’s dedication to deepening the capital market.
“We are confident that NGX Technology Board will encourage start-ups, both Nigerian-founded and from other African countries, to list on the Exchange as they work towards meeting their financing needs,” Popoola said.
While most analysts expect foreign portfolio investors (FPIs) to remain on the sidelines until visible changes in forex management, FPIs may be encouraged by steady returns and post-election policies. Recent data already showed positive trend in FPI inflows. Foreign investors had over a four-month period been buying more Nigerian stocks than selling.This represented a major upturn for Nigeria’s FPI status, which had suffered dual reversal of generally low foreign transactions and tendency to sell than buy.
While the proportionate participation of FPIs in the market remains low compared to its historical trend, recent data have seen the country transiting from FPI deficit to surplus, with more inflows than outflows.The FPI report for the 11-month period ended November 2022 showed that total foreign inflows stood at N187.12 billion as against outflows of N176.90 billion, representing a surplus of N10.2 billion during the period. This compared with the negative position in corresponding of 2021 when the country recorded FPI deficit of N20.34 billion, with outflows of N209.76 billion outpacing inflows of N189.42 billion.
Yuguda expressed confidence that as the results of various initiatives begin to gradually manifest in 2023, the capital market will witness uncommon development in securities issuance businesses, especially as it affects digital assets, commodities trading ecosystem, custodianship of assets, and Fintech among others.
“With the implementation of the Revised Capital Market Master Plan, the Market will also witness renewed confidence expected to attract fresh investments from domestic and foreign investors.
“Although 2023 is an election year and market activities may typically slow down before and during the general elections, we are hopeful that the improved awareness and positive electioneering campaigns will lead to peaceful elections and a quick return to the pre-election levels of investment activities,” Yuguda said.
A fourth consecutive bullish run will be a new highpoint in the recent history of the capital market, and may build a new resistance depth for the market. Despite the headwinds, the outlook for the capital market appears promising.
